Mobile Plans With No Phone Subsidies Are Winning Over Customers

Wireless customers seem to like early upgrade plans, according to a survey out this morning by Consumer Intelligence Research Partners, LLC.

About 31% of eligible customers that activated phones from July to December 2013 chose a financing plan from one of the four major carriers. That excludes figures from smaller carriers and sales at retailers such as Best Buy that don’t offer early upgrade financing plans. When those outlets are taken into account, the figure stands at 23%.

That excludes figures from smaller carriers and sales at retailers such as Best Buy that don’t offer early upgrade financing plans. When those outlets are taken into account, the figure stands at 23%.

Financing plans were introduced to ease the burden on consumers of paying a higher price for unsubsidized handsets. Last year, T-Mobile was the first to offer such a plan, rather than the traditional phone subsidy. AT&T, Verizon and Sprint all followed.

Because T-Mobile no longer offers subsidized phones at all, effectively 100% of its customers are on a financing plan or buying their device at full price. Around 15% of customers activating a new phone at the other three carriers chose the early upgrade financing options, according to the survey.

“That’s a huge number for a program that’s only about six months old,” said Mike Levin, one of the survey’s authors. “People have been buying subsidized phones for 15 or 20 years, and for nearly a quarter of all phone buyers in a 6 month period to all of the sudden start switching to financed phones seems to be a very significant development.”

During a call with analysts Wednesday, Verizon Chief Financial Officer Fran Shammo said Verizon’s financing program, known as Edge, “is going very well for us.” But the program is “generating less than 1% of our profitability right now,” he said, “so this is not a significant portion of our portfolio.”

The report, which surveyed 1,000 people, bodes well for carriers, which have grumbled about paying high subsidies for smart phones. In the past, customers typically paid anywhere from $0 to $250 up front for a phone, and the carrier would eat the remaining price of the device.

The new financing plans allow customers to pay off their phones over time, and in some cases the cost of the monthly plan goes down once the phone is paid off.